Eurozone tentatively looks at helping Greece on debt

It comes after Athens passed painful reforms


Eurozone tentatively looks at helping Greece on debt

The euro zone was to turn its attention tentatively on Monday to helping Greece deal with its massive debt repayments, a few hours after lawmakers in Athens passed unpopular pension and tax reforms one critic called "a tombstone for growth."

Officials in Brussels said the Eurogroup of euro zone finance ministers would start talks -- preliminary only -- on a potential reprofiling of Greek debt to make future servicing costs manageable, despite opposition from fiscally hard-line Germany which does not believe any relief is needed.

Such reprofiling is not debt forgiveness in itself, but rather includes such things as stretching repayments out over years or tying them to economic performance.

The package of reforms passed in Athens earlier on Monday was required by Greece's international creditors to free up more than 5 billion euros ($5.7 billion) from its latest bailout, although that outcome is not guaranteed at Monday's Eurogroup meeting.

"A ... deal needs to address three issues: reforms -- we are there -- the contingency mechanism -- we are almost there -- and the debt issue -- we are starting the discussion," European Commissioner for Economic and Financial Affairs Pierre Moscovici said on entering the meeting.

The International Monetary Fund believes Athens must get debt relief for its economy to develop and wants the discussions to focus on capping annual servicing costs at around 15 percent of GDP or less.

Germany believes Greece can do without debt relief for now, especially that it does not have to service its debt until after 2022, when a 10-year grace period expires.

German Finance Minister Wolfgang Schaeuble and Greek Finance Minister Euclid Tsakalotos met in Brussels on Monday morning ahead of the euro zone ministers' meeting to work out a compromise, officials said.

In Berlin, German government spokesman Steffen Seibert said that Greece's economic reforms must be reviewed by euro zone finance ministers before any additional debt relief can be decided on.

Early on Monday in Athens, lawmakers passed unpopular pension and tax reforms that aim to ensure Greece will attain savings to meet an agreed 3.5 percent budget surplus target before interest payments in 2018, helping it to regain bond market access and make its debt load sustainable.

"We have an important opportunity before us for the country to break this vicious cycle, and enter a virtuous cycle," Greek Prime Minister Alexis Tsipras earlier told parliament during a debate on the reforms.

But Kyriakos Mitsotakis, leader of the conservative New Democracy party summed up the opposition to more austerity: "The measures will be a tombstone for growth prospects."


The ministers meeting in Brussels will be presented with two reports on how to reprofile Greek debt -- one prepared by the IMF and the other by euro zone institutions.

But the discussions will be preliminary with no decisions expected because a deal on debt relief has to be agreed at the same time as two packages of Greek reforms, only the first of which was passed on Monday.

The other is even more problematic because Greece's lenders want the country to legislate now what reforms would automatically kick in if Greece looked set to miss the 3.5 percent primary surplus target in 2018.

Tsakalotos wrote in a letter to euro zone finance ministers last week that such steps were impossible to legislate under the Greek legal system.

Yet without such a contingency package the IMF does not want to sign off on the next loan disbursement. Even though the IMF does not have a bailout now in place for Greece, its go-ahead for any European disbursements is politically a must for Germany and half a dozen of other euro zone countries.

The contingency measures are to amount to savings of 2 percent of GDP -- the difference between the IMF's and European forecasts for the 2018 primary surplus under current reforms, including the ones passed on Monday.

The IMF believes Greece will only reach a surplus of 1.5 percent. (Additional reporting By Tom Koerkemeier and Francesco Guarascio; editing by Jeremy Gaunt)

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